Posted: by Bronte
Why is the Bail Bonds Industry Considered High Risk?
First of all, what is a bail bond? A bail bond is a surety bond that is provided by a surety bond business through a Bail Bondsman or bail agent. Commonly in this industry, the bond is paid for by a member of the defendant themselves or by friends, family, etc. through a bail bond payment gateway. This bond acquires the release of a defendant from the courts or jail. There are two types of existing Bail Bonds:
- Civil Bail Bond: These bails are used in civil cases to guarantee the payment of a debt, including the costs and interest that are pending against the defendant.
- Criminal Bail Bond: Assures the criminal or defendant will appear for trial on the court date. This same bond also is a guaranteed payment for penalties and fines that are charged against the defendant.
Bail Bonds and How They Work
When the defendant appears before the judge in court the judge will announce a bail amount. If the defendant does not have the money to pay in full, they can reach out to a bail bondsman for help. The bail bond business can consist of deposit bonds, surety bonds, collateral bonds, unsecured bonds, personal recognizance, and other forms of pretrial release.
In most cases, the defendant will have to pay 10% of the set bail amount. The bail bondsman will then provide the remaining bail amount in the way of collateral. If the defendant does not have enough to cover the bail, the bondsman will out the defendant’s family and friends. An extra cash payment will often be required in addition to the full collateral for the bond to be posted. The next deciding factor rests on whether the defendant appears in court as scheduled.
If the defendant does not appear in court on the scheduled date and time the bond is null. At that point the court system will require the remaining 90% of the bail to be paid in full. The bondsman will then use the collateral to pay the outstanding amount to the court system.
If the defendant does appear on the court date and the bail is cancelled, the collateral is returned to the people who posted it. The bondsman will normally keep the 10% upfront cash fee as the charge for service.
The bail bonds industry grows when the crime rate grows. According to IBISWorld, the total revenue in this industry so far in 2019 is 3 billion dollars. The annual growth from 2014-2019 is 0.9% and continues to expand.
Starting a Bail Bonds Business
Opening a bail bondsman company proves to be a very attractive investment due to the rising demand for bail bonds. The risk of defendants not showing up for their court date and default is normally very low. The business will earn around 10% on every client. This is either from the fee taken or from collateral put up to cover the cost.
When you are in the bail bondsman business there are different ways that you can work with your clients. Some business owners require their clients to check in weekly or biweekly to keep track of them. This ensures that clients are staying on the right track and going to make their court dates. If a client goes missing before the court date you may need to seek out help from friends and family of the defendant. Knowing where the defendant is helps to ensure that he/she will show up for their scheduled court date.
Regulations and laws do vary by state and it is important to know your states requirements. Normally, the business will need to have at least $50,000 worth of assets to be able to write bonds. Without this, a business needs at least enough in property value to ensure you are able to pay on the outstanding bonds if the defendant decides not to show up on the scheduled court date.
Some states may also have requirements concerning apprenticeship time with an already existing bail bonds business. Depending on the state there may also be a requirement for continuing education credits before obtaining the proper license to do business. The education process usually involves 8-20 hours of state accredited bail bondsman education prior to obtaining the proper licensing.
Obtaining Bail Bond Merchant Services
Entrepreneurs starting a bail bonds business in this industry are often surprised that they are initially denied a merchant account. This is because they are most likely applying with a traditional bank. Tier one, traditional banks do not support this business type because of its high risk tendencies.
All too often there are those beginning their bail bonds business that will use merchant accounts like PayPal or Stripe. In the beginning things may go well and the payments will be processed, but soon enough it will come back to haunt them. The problem is that this type of business merchant account is against these processors terms of service. If the payment processor picks up on the account’s industry type, it will be shut down immediately. This is not something that you want to have happen to your merchant account.
There are a few reasons why the bail bonds industry is more risky than others:
- The potential for unreliable customers
- Increased chargebacks
- Inconsistent cash flow
For these reasons, it is best to find a high risk merchant account through a payment processor that will support you.
High Risk Merchant Services
The best thing to do when starting this type of business is to acquire your bail bonds merchant account through a high risk provider. These are the experts that know exactly how your business works and how to help process credit card payments securely. There are options for phone and mobile payments, as well as MOTO and eCommerce with a high risk provider. They excel at accommodating all types of merchants, no matter how risky they are.
Contacting a high risk merchant account provider will set a strong foundation for your business to build on.
Do it right the first time and secure a provider who knows your business and how to accomodate your needs.